William Strong, a first year auditor with a Chartered Professional Accountant (CPA) firm in Toronto, has just completed the field work for the audit of BBT Company. He has discovered the following:

• BBT capitalized $50,000 which should have been expensed. This amount was determined by sampling the additions to property, plant and equipment. The projected error is $84,000.
• BBT recorded revenue of $25,000 that had not yet been earned. This was discovered through accounts receivable confirmation sent to customers. All receivables were confirmed.

The audit senior is beginning his review of the work and asks William for a summary of the misstatements resulting from the field work. He tells William to be sure to include both known and likely misstatements. William is unsure what the audit senior is referring to.

The audit senior also asks William to start to draft the communications that are required at the end of the audit.

Required:

1) Explain to William what the audit senior refers to when asking for known and likely misstatements. Give a summary of the misstatements. 

2) What communications are required at the end of the audit? What is the purpose of these communications?

3)Explain or describe the different types of misstatements to a maximum of 11 marks?

4) One mark for each valid point describing the communication required and purpose at the end of the audit to a maximum of seven marks?

Answer rating: 100% (QA)

1 When asking for known and likely misstatements the audit senior is referring to the misstatements that have been identified through the audit process and those that are likely to be found The two kn... View the full answer